Question

Lena Horn bought a Toyota Tundra on January 1 for $30,000 with an estimated life of 5 years. The residual value of the truck is $5,000. Assume a straight-line method of depreciation.

What will be the book value of the truck at the end of year 4?

Answer 1

After 4 years of straight-line depreciation, Lena Horn's Toyota Tundra will have a book value of $10,000, calculated by deducting the accumulated depreciation from the original purchase price.

Step-by-step explanation:

Lena Horn's Toyota Tundra, purchased for $30,000 with a 5-year estimated life and a residual value of $5,000, will depreciate linearly over its useful life. To calculate yearly depreciation, subtract the residual value from the purchase price and divide by the number of years. In this case:

1. Depreciation per year = (Purchase price - Residual value) / Estimated life
2. Depreciation per year = ($30,000 - $5,000) / 5 years = $5,000 per year

By the end of year 4, Lena will have accounted for 4 years of depreciation:

1. Total depreciation by end of year 4 = Depreciation per year * 4 years
2. Total depreciation by end of year 4 = $5,000 * 4 = $20,000

The book value of the truck at the end of year 4 is the original purchase price minus the total depreciation accrued:

1. Book value at end of year 4 = Purchase price - Total depreciation
2. Book value at end of year 4 = $30,000 - $20,000 = $10,000

The final answer with a two line explanation in 300 words: After applying the straight-line method of depreciation over 4 years, Lena Horn's Toyota Tundra will have a book value of $10,000.